This just in: CEO Chris Shuba in Financial Planning

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How The Mega Cap Rally Unfolded

  • There have been a lot of headlines regarding how the largest tech companies in the world have fueled the stock market gains so far this year. Many of these explanations have centered around the surge in artificial intelligence and the implications of the technology.
  • So far this year, the S&P 500 Index has outperformed the S&P 500 Equal Weight Index by around ten percentage points – a huge divergence for indices that hold the same stocks, just at different allocations. The equal weight index effectively tilts the index to the smaller names within the large-cap universe.
  • However, when looking at how the first half of the year unfolded, the AI story is only part of it and may just be a supporting role in the larger story.
  • Performance between the S&P 500 and S&P 500 Equal Weight Index first began to diverge around the same time as the collapse of Silicon Valley Bank (SVB). The divergence could be, at least partially, explained by larger companies being better insulated from the turmoil facing SVB and the troubled regional banking sector.
  • While AI was a hot topic prior to NVIDIA’s blockbuster earnings report in late May, by then, the S&P 500 had already outperformed its equally weighted peer by over nine percentage points, which isn’t materially different than the latest figures. If AI were indeed the primary driver of mega-cap outperformance, one might have expected the performance difference to have grown since then.

    Source: Helios Quantitative Research, Bloomberg